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July 19, 2010 MinutesCITY OF DENTON CITY COUNCIL MINUTES July 19, 2010 After determining that a quorum was present, the City Council of the City of Denton, Texas convened in a Special Called Work Session on Monday, July 19, 2010 at 11:36 a.m. in the Council Work Session Room. PRESENT: Mayor Burroughs, Council Member Engelbrecht, Council Member Gregory, Council Member Heggins, Mayor Pro Tem Kamp, Council Member King, and Council Member Watts. ABSENT: None. 1. The Council received a report, held a discussion, and gave staff direction regarding alternatives for transportation and economic development opportunities, which were currently being discussed in the 81st Interim Legislature and by various regional and statewide transportation stakeholders. Lindsey Baker, Assistant to the City Manager, briefed the Council on Transportation Reinvestment Zones. She stated that this was a preliminary discussion to the upcoming discussion on August 3 on Tax Increment Finance Zones. She stated that she would also highlight the funding alternatives that the State Legislature might extend in the 82nd legislative session to municipalities, counties and other political subdivisions of the state. Baker stated that the Transportation Reinvestment Zone (TRZ) was created in 2007 by the Legislature primarily to promote a transportation project in an unproductive or underdeveloped area. The statute authorized municipalities and counties to dedicate a portion of property tax revenue to finance highway projects. The language did not currently define the radius of a proposed zone. In order to be eligible for a TRZ, a municipality must enter into a pass-through agreement with TxDOT, which essentially meant that it had to be a state roadway or highway. A city could not use a TRZ to finance a street project or non-TxDOT roadway project. By entering into a pass thru agreement, a city-financed highway project would lead, in theory, to economic development in the area adjacent to the highway and increased property values allowing the city to capture the incremental tax increase from the property to help fund that project. Also, TxDOT would reimburse the municipality based on a "per vehicle fee" or a "per vehicle mile fee" that was determined by the number of vehicles using a highway. Campbell stated that the intent of the pass thru tolling agreement was that the reimbursement from the state would be used to off-set the city's debt service cost. It would be dependent upon usage and volume of traffic and would not pay back 100 percent of costs. Campbell stated when the TRZ was created, a city determined the baseline of the tax value that was there at the time. Any value increase that occurred because of new constriction or growth in value was assumed to have occurred because of the project that was being constricted by the TRZ and all of the incremental increase in the tax value was accrued to the benefit of the TRZ. You still maintained what you had at the baseline level prior to the creation of the TRZ. Baker stated that the Texas Transportation Commission determined the boundaries of the TRZ and the conditions of the creation of the TRZ. City of Denton City Council Minutes July 19, 2010 Page 2 Baker stated that the difference between a TRZ Transportation Reinvestment Zone and TIRZ Tax Increment Reinvestment Zone was that a TIRZ was synonymous with a TIF. With a TRZ, only the property tax increment could be used. Whereas in a TIF, both the sales tax and property tax increment could be used. Baker stated that there was a difference between the TIRZ and the TIF, even though both provided for tax increment financing for economic development and for roadway constriction in under-developed areas. The major difference was that the TIF allowed the creating entity to capture both the local property tax increment and the local sales tax growth increment; and they could dedicate a portion-all or none-of that incremental tax growth to the designated project. Current TRZ legislation was such that you had to put forth 100% of the property tax increment growth. Another difference was that collection of the sales tax increment in a TRZ was not permitted at this time; only the property tax. One other difference was that within a TIF, the creating entity could use the dollars to fund infrastructure improvements including sidewalks, streets, and beautification projects. Baker stated that back in February the house and senate transportation committees held a hearing to consider the interim charge of policy implications of Transportation Reinvestment Zones funded by state sales and use taxes as an alternative to public financing of transportation projects. The committee discussed a bill that had been proposed but did not pass in 2009 during the 81st legislature and that was SB 505. SB 505 proposed creating a Transportation Finance Zone or TFZ. This would actually authorize the Texas Transportation Commission to designate an area adjacent to a state highway project as a TFZ and could have authorized the use of proceeds from state sales and use taxes but not property taxes to fund the project. It was not stated if it was the incremental growth or 100%. They had discussed expanding the scope of the eligible projects to include all transit related projects, including highways, streets, and rail. They also discussed possibly extending the use of sales and use tax to a TRZ, in addition to the property tax. The financing tool would possibly be collection of local sales and use tax, in addition to the local property tax increment to fund the designated project. The new modified TRZ would still not be as broad as a TIF in terms of eligible projects such as the infrastructure improvements, lighting, etc. that could be done in a TIF. Baker stated that if the legislature proceeded with the TRZ legislation as discussed, there were many unanswered questions which might pose risks to a municipality's tax base. Only cities and counties were authorized to create the TRZ and the TIF but there was concern that other political subdivisions of the state might lobby the legislature to gain that authority. Baker stated that staff had the following concerns: 1. If another governing body were allowed to form a TRZ within city limits and collect the local sales and local property tax increment, this would essentially act as a revenue cap limiting the city's ability to collect those taxes above the base tax rate that was established to measure that incremental growth. 2. It might be possible that another governing body could be given authority to create a TRZ that overlapped an existing municipal TIF. 3. It was not clear, that if a TRZ were created by another governing body that overlapped an existing municipal TIF, if funds that had not been dedicated to the project costs of the designated TIF could go to the governing body of the overlapping TRZ, reducing the tax base of the TIF governing body. City of Denton City Council Minutes July 19, 2010 Page 3 4. The TRZ legislation might be modified to include a 2 mile radius on either side of the center line of the highway project. If another governing body was given authority to create a TRZ, they would be able to capture the sales and property tax base within that 2-mile radius. General consensus of the Council was that staff support all transportation funding options provided they did not eliminate or reduce municipal authority or revenue sources. 2. The Council received a report, held a discussion and gave staff direction regarding street maintenance issues. Jim Coulter, Director of Water Utilities, briefed the council regarding street maintenance issues, current maintenance activities, and staff recommendations on the changes needed to adequately operate and maintain the street system. He stated that in 2003 a consultant performed an automated pavement evaluation. This evaluation gave staff an assessment of the Overall Condition Index of the City's street network. Based on the analysis of the road condition, the consultant performed model nuns to determine the level of expenditure necessary to prevent the deterioration of the City's roadway system. A second automated pavement assessment project was started in 2009. The consultant was finalizing the analyses to determine the maintenance activities necessary to prevent the deterioration of the road system. He stated that there were 1,382 lane miles valued at $383 million currently in Denton. The City had added an average of 25-30 lane miles per year over the past six years. He stated that initial constriction to reconstruction was 20 years for asphalt and 35 years for concrete. If we did not maintain our streets, it would cost (using a 20 year average life-cycle) $383 million over 20 years, which would be $19.15 million per year. This was assuming that 1/20 of the streets were repaired each year. The results of the 2008 citizen survey rating city services showed that of the citizens responding, 35% ranked street maintenance as excellent/good and 65% ranked it fair/poor. Coulter briefed the council on preventative maintenance activities - crack seal, micro-seal, hot- mix asphalt overlay, and street reconstruction. He stated that pavement distresses included cracking, base failure, horizontal cracking, and transverse. He stated that pavement distress was caused by: wheel load - 1 trick equals 9,300 passenger vehicles; environment - weather hot, dry, wet, freezing; poor drainage; material deficiencies; external causes (utilities - cuts); expansive soils. Coulter stated that the current street budget was $4.5 million. It consisted of $2.5 million for labor and equipment and $1.9 for materials. There were three crews - patching, constriction, and crack seal/pothole. Coulter stated that by looking at the 20-year life cycle costs and assuming a cost of $300,000 per lane mile, it indicated we needed to be spending 20.7 million dollars per year for annual maintenance. Our current standards for roadway constriction should yield a 35 to 40-year life cycle. He stated that by increasing the life cycle of our roadways to 35-40 years, the annual maintenance expenditures could be reduced to $13 to $15 million per year. City of Denton City Council Minutes July 19, 2010 Page 4 Coulter stated that staff had surveyed other areas of the country that were having funding problems, and what a number of places were starting to do. They were looking at the roadways and the roadway usage and in some cases they could not afford to continue to overlay and put pavement on them, so they were grinding them up and turning them back into gravel. This was starting to be the trend in how other entities were dealing with budget shortfalls. Coulter stated that the bottom line was that there was currently $4.5 million in funding right now, but that needed to be increased up to $18 million per year to get to a level where the overall rate of our roadways did not continue to decline. Coulter stated that once they received the final study of the automated pavement project, staff would review it and bring funding recommendations back to the Council in the fall. Following the completion of the Work Session, the City Council convened in a Closed Meeting at 1:05 p.m. Closed Meeting: A. Consultation with Attorney - Under Texas Government Code Section 551.071. Received a briefing from the City's attorneys regarding legal issues related to parking and speed matters on City streets running through or adjacent to the University of North Texas and Texas Woman's University. Discuss, deliberate and provide attorneys with direction. A public discussion of these matters would clearly conflict with the duty of the City's attorneys to the governmental body under Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas. 2. Consultation with the City's attorneys regarding legal issues associated with board and commission members and conflicts of interest and the release of confidential information where public discussion associated with these legal matters would clearly conflict with the duty of the City's attorneys to the City of Denton and the Denton City Council under the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas. With no further business, the meeting was adjourned at 2:10 p.m. MARK A. BURROUGHS MAYOR CITY OF DENTON, TEXAS JANE RICHARDSON ASSISTANT CITY SECRETARY CITY OF DENTON, TEXAS